European policymakers need to increase circularity and accelerate the switch to renewable energy to secure the future of a low-carbon steel sector, according to a new policy briefing for institutional investors. Produced by the Institutional Investors Group on Climate Change (IIGCC), the report said policy can support the net zero transition of the European steel industry by improving circularity in the value chain, providing low-cost clean power capabilities that account for the sector’s capital intensity, stimulating demand for green steel, and managing its impact on workers and communities. Recommendations specific to circularity include incentivising the capital investment needed to adopt electric arc furnaces, further reducing contamination risks to recycled steel, removing barriers and disincentives to greater use of recycled steel, and aligning with efforts to develop an international market for recycled steel. The steel industry is responsible for 7-9% of global CO2 emissions and around 5% in Europe. The region accounts for around 11% of all crude steel production, behind China which has more than half the global market. According to the IIGCC, investors view Europe as well-placed to seize opportunities arising from the global transformation of the steel sector, due to its generally high-end production capabilities. The report and its recommendations are intended to support institutional investors’ macro-stewardship activities, direct engagement with policymakers, and engagement with companies in the steel sector and its value chain. “While the EU has made good progress on headline climate commitments and targets, ultimately these can only be met if there’s action on the ground in the real economy,” said Edward Baker, Net Zero Manager at UK pension scheme LGPS Central. “This requires clear sector-by-sector policies, with steel one of the most important due to the industry’s emissions profile and its strategic importance for the green transition.” 

Australia’s Climate Change Authority has outlined emissions reduction pathways for key sectors in a roadmap that will inform the government’s plan to reach net zero by 2050. The review identified strategies and actions to overcome barriers to decarbonisation in six areas: agriculture and land; built environment; electricity and energy; industry and waste; transport; and resources. “To achieve a rapid and orderly transition to net zero, all sectors of the economy, along with all levels of government, must plan and act together,” said Chair Matt Kean. As well as mature technologies such as solar and wind for electricity generation and batteries for energy storage, opportunities exist for the rapid development of emerging low-emission technologies – such as hydrogen and carbon removal. Kean said technology uptake, investment and cooperation were critical success factors for Australia’s net zero transition, calling on developers of renewables projects to engage with regional communities about infrastructure’s role in the energy transition, and better explain the sharing of benefits from its rollout. The report also recommended the Australian government work with local, state and territory governments, businesses, communities and households to build on existing climate-change policies, reform-development approval processes, as well as to address mounting workforce shortages.  “Policy credibility, stability and certainty are crucial to keep capital flowing towards Australia’s clean industries,” said Erwin Jackson, Managing Director of Policy at the US$35 trillion-backed Investor Group on Climate Change. “That means good jobs, training opportunities and income across the country.”

The Zurich Climate Resilience Alliance (ZCRA) has released two reports underscoring climate finance-related challenges ahead of COP29 in November. The first paper, ‘Making climate finance work for all’, makes five key recommendations for the New Collective Quantified Goal (NCQG) – a successor climate finance target due to be formalised during COP29 and to raise the US$100 billion floor set in 2009, taking into account the needs and priorities of developing countries in efforts to cut greenhouse gas emissions, boost resilience, help communities adapt to climate change, and cover loss and damage costs. “It is critical that this NCQG reflects the lessons learned over the last 15 years, restores trust in the multilateral process, and equips countries to respond to rapidly escalating challenges,” the ZCRA said. “This report sets out key principles and five tests that can help ensure the NCQG is robust, all of which are underpinned by a core principle of fairness.” The second report, published in collaboration with global affairs think tank ODI, explores the collective aspects of the NCQG – looking at which countries should pay and how much, based on their historical responsibility for climate change and financial capacity. Since 2021, ODI and the ZCRA have jointly published an annual report evaluating which developed countries are paying their ‘fair share’ of climate finance. In 2022, only 12 countries contributed fairly to the US$100 billion goal: Norway, France, Luxembourg, Germany, Sweden, Denmark, Switzerland, Japan, the Netherlands, Austria, Belgium and Finland. Meanwhile, Australia, Spain, Canada and the UK stand out for their relatively poor performance – with the vast majority of the climate finance gap is due to the US not paying its fair share. ODI and the ZCRA recommended a “burden-sharing mechanism” be included in the NCQG to provide clarity and hold countries accountable.

Chinese issuers are increasingly using the Common Ground Taxonomy (CGT) when launching green bonds, according to the China Foreign Exchange Trade System (CFETS). Updated in 2022, the CGT was originally developed through collaboration between China and the EU to harmonise green finance standards – covering carbon-intensive sectors including energy, manufacturing, construction, transportation, and forestry. Issues in China’s green bond market can attract more foreign investment by aligning with the CGT, but are only verified if 100% of funds are used for compliant projects. The CFETS said 325 CGT-aligned green bonds have been issued in the interbank market, as of 31 July 2024 – including 63 this year, compared to 53 last year. Of all CGT-aligned issuances, 244 are still outstanding, accounting for more than 22% of the interbank green bond market. CGT-aligned green bonds were mostly issued to raise funds for public transportation systems (31.2%), wind power generation (27.7%), and hydropower generation (20.9%). Almost 90% of the bonds are rated AAA. Several Chinese institutions have issued green bonds overseas using the taxonomy, which has also influenced green financial standards in other jurisdictions, such as Sri Lanka and Hong Kong. In addition, the report provided analysis of the issuance and trading of CGT-labelled green bonds, as well as their environmental impacts, such as significant reductions in carbon emissions and energy savings. CGT-labelled green bonds have also been integrated into indices, information dissemination channels, and green business repurchase agreements.

New research conducted by global real estate adviser Knight Frank has warned the UK is struggling to overcome its commercial retrofit challenge, as the sector comes under pressure to align with net zero goals. Obsolescence is accelerating due to growing regulatory, physical, financial and functional sustainability-related risks, the report noted, with 70% of commercial property floor space in the country rated EPC C or below. This means that most floor space on offer would be at risk of being unlettable if previously proposed minimum energy performance standards are implemented. Total commercial floor space with an EPC B or higher has grown by an average of 8% a year to reach two billion square feet at the end of 2023. This needs to double to 18% a year for all commercial properties to be aligned with the country’s 2030 energy ambitions, Knight Frank suggested. In London alone, some 12.7 million square feet of available commercial space needs to be upgraded over the next six years. Cardiff has the lowest proportion of available office space with an EPC of B or above at 24%. Just over three quarters of surveyed European investors said they were looking to improve the quality of their existing real estate portfolios through refurbishment, with 58% claiming they are actively seeking to acquire poor ESG-performing assets to upgrade. “Obsolescence is nothing new but is accelerating due to sustainability factors,” said Flora Harley, Head of ESG Research at Knight Frank. “The risks are complex, interlinked, and driving investor and developer strategies – they are significantly reshaping the market and need to be fully understood and analysed. By delivering the most desirable buildings from an amenity perspective, landlords and investors can ensure that the buildings are the most lettable and can help occupiers meet key objectives, such as talent retention and ESG requirements.”